The benchmark FTSE MIB index was down around 1.6% this morning, trading at a low of 19,414 points as of 9:10 a.m. BST (4.10 a.m. ET), dragged lower by a global flight to safety triggered by fears around rising bond yields, and a stern warning from the International Monetary Fund about threats to global financial stability.

That meant the FTSE MIB had fallen 20.1% since its recent high of 24,544 points in May this year. Since dipping below that level, the index has rebounded a little, but remains within a whisker of a bear market.

The chart below illustrates that drop:

While most stock markets are contending with fears of a global slowdown, Italian investors have also got to consider a cocktail of domestic risks, largely linked to the country’s ongoing budget crisis, which has seen its government clash with the European Union over its spending plans.

The budget proposes increasing both Italy’s overall government debt and its deficit in the short run. This in turn risks the country falling foul of EU fiscal rules.

European Union authorities have already asked Italy to amend its budget to avoid such an outcome, but the coalition’s eurosceptic party leaders are refusing to do so.

“The government is still calling out the EU for its restrictive fiscal rules, vowing not to back down in the face of demands to amend its 2019 budget,” Claus Vistesen of Pantheon Macroeconomics wrote to clients on Thursday.

The situation has been made even worse by a discussion of the widening spread between Italian and German bond yields by Salvini on Wednesday.

“Mr. Salvini committed the cardinal sin yesterday of giving markets a target,” Vistesen said in a report. Salvini said, Vistesen wrote, that the 10-year BTP-Bund spread won’t go to 4% and that the government will take action if it does.

“You don’t have to be a bond market veteran to predict what happens next,” Vistesen said.

A further widening of the spread between German and Italian yields would be seen as reflecting increased fears about Italy’s economic state, which in turn would likely see stocks in the country sell-off even more aggressively.